Strong measures reccomended for transformation of the financial services

JOHANNESBURG - The draft report on the transformation of the financial services sector has recommended strong measurers, including penalties, to force companies to achieve targets.

The draft report, which was compiled by parliament’s standing committee on finance, also called for more reliable and adequate statistics to gauge the pace of transformation in the sector.

The country’s banks, pension funds and insurers, the Department of Trade and Industry (DTI), the financial sector charter council and National Treasury all made submissions to the committee.

Committee chairperson Yunus Carrim yesterday said there was there was a huge divide on how far the industry had transformed. Carrim said this would make it difficult to reach consensus. “The committee is not calling for an overnight overhaul, but the sector needs to transform more effectively and sustainably within reasonable timelines,” Carrim said. “We feel that the targets in the financial services charter need to be made compulsory.”

The draft report also proposed that the meeting of the targets be part of the licensing process in the sector. It also said insurance companies should ensure that direct ownership was mainly black and had a significant women representation. It called for the scrapping of banks repossessing and auctioning of houses and cars way below their market value.

Carrim said this recommendation was non-negotiable. Earlier, the National Empowerment Fund told the committee that R244.6 billion would be needed to achieve the 25 percent black ownership target in the industry as stipulated by the country’s broad based black economic empowerment codes. Carrim said it there was a need for uniform statistics.

“The dominant players in the financial services sector insisted there has been a significant transformation in the sector, even if they have not achieved several of their generic code transformation targets,” he said.

“Other stakeholders believed there was little or no transformation in the sector. And many of them did not believe the statistics that suggested otherwise. It is clear that a significant number of stakeholders distrust and are even suspicious of the dominant players in the sector.”

The DTI has already proposed that state assets must be managed by asset managers that are at least 51 percent black-owned with level four broad-based black economic empowerment by 2019. The ninth annual BEE.conomics survey, released on Tuesday revealed that assets under management by black-owned asset management firms grew 1.76 percent from R408.3bn in 2016 to R415.5bn in 2017 – slower than the 32 percent leap from 2015’s R309.2bn. The group said this represented 9 percent of the total R4.6 trillion of assets available for management by private sector asset managers (out of a total savings pool of R7.9trn.

In its submission, the Banking Association of South Africa (Bsa) argued that the largest share of the top six South African banks was owned by foreigners, followed by mandated investment schemes such as the Public Investment Corporation (PIC) and the remaining 17 percent is owned by all other categories of investors, including individuals.
Basa said it was important to understand that ownership deals were usually financed through loans by banks to black individuals or groups and this was extremely inefficient for the economy because the capital employed for this could not be leveraged.

“What this actually means is that for every R10 of capital a bank uses to finance a new black shareholder, approximately R80 is removed from financing a black business…So, a choice must be made between the financing of black ownership and increasing financing in the real economy,” Basa had said.